Audit finds conflict of interest, gives 'poor' rating to Lake Lotawana tax district

A now-bankrupt special tax district within Lake Lotawana, Mo., received a "poor" rating in a state audit as a result of omissions in financial reporting and documented conflicts of interest.

The community improvement district was established in 2005, after a petition from all the property owners within the district to the city of Lake Lotawana. It was created to get funding to build sewer facilities and to maintain infrastructure, and received $8.85 million in bonds to do so.

In a report obtained by 41 Action News, the Missouri State Auditor's office gave the CID its lowest-possible rating. Auditors presented their findings at a public meeting Tuesday evening.

According to the audit, two members of the CID's board of directors voted to approve a $60,000 loan to a company they represented, Lightfoot Development, in Jan. 2010. The district filed for bankruptcy that August.

The board of directors refuted that point in a written response included in the audit.

"No Director has ever voted on a related party transaction. The minutes were prepared in error," it said.

But Kent Reese, a member of the board, provided a separate response, saying there was a clear conflict. He said loans were given on a personal basis.

"Whether or not they voted for themselves in the matter of loans I think is immaterial," he wrote. "I don't think the conflict of interest issue is only that they may have voted for loans for themselves, but that they actually gave each other loans given their apparent tight relationships with each other."

The audit also flagged a loan made to the Lone Summit Development Group for $100,000 in June 2007.

Both loans in question were to be used to obtain water facilities for the properties within the district -- however, there were no due dates given as to when they should be paid back.

As of June 29, 2012, neither loan was repaid.

According to the audit, the CID also failed to provide accurate financial reports.

"The district submitted inaccurate reports ... which overstated revenues and failed to reflect a loan made by the district," the audit stated.

Since its creation, development within the CID has been much slower than projected.

As of the district's Aug. 2010 bankruptcy filing, only around 25 houses had been built on its 352 residential lots, according to the report. The only commercial developments were a bank and a convenience store.

The district was also faulted for collecting a paltry amount of special assessments, which were to be used to make interest payments on the more than $8 million in bonds the CID received.

From 2007 to 2009, the development companies within the district were supposed to pay more than $2 million in special assessments; according to the audit, they were only billed $25,216.

In 2010, the property owners were billed $741,885 in special assessments, but only $23,000 was collected.

The report also found the CID did not keep minutes for closed meetings as required by law. In addition, the board of directors once went nearly seven months without meeting, from Sept. 2011 to April 2012, according to the audit.

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